Australia’s $234 Billion Climate Gamble

The Climate Change Guy

As of last year, China and the US were first and third on the list of Australia’s trading partners. Australian trade with China was worth $152.53 billion - a total that has grown by 12.2% on average over the last 5 years. Australia’s trade with the US was worth $60.43 billion as of 2014, having grown 4% on average over the last 5 years.

See more on Australia’s trade figures here

In March this year, China raised a number of concerns regarding Australia’s Intended Nationally Determined Commitment (INDC) for greenhouse gas emissions in the lead up to the Paris Climate Summit in December. In particular, they queried whether replacing the planned Emissions Trading Scheme (ETS) and the Carbon Farming Initiative (CFI) with the Emissions Reduction Fund (ERF) will yield the reductions that were likely under those two. The US also queried whether the ERF will primarily replace the ETS or whether other Policies and Measures will be considered.
I discussed a number of issues regarding the ERF (the Flagship of the Australian Government Direct Action plan) and the first Auction in April this year in an earlier blog. The second Auction will be held on 4 and 5 November, which is approximately three and a half weeks prior to the Paris Summit. It is possible that news of the second Auction results will spread as widely and quickly as for the first, including to representatives of other nations attending the Summit. The representatives may be keen to quiz the Australian party on the results, particularly if the results are questioned as extensively in social media as the results of the first Auction were. This will be very interesting to watch indeed.

See more on the second ERF Auction here 

In the time since the first Auction, it is fair to say that a lot has transpired politically in an international and domestic context that highlights and brings into focus Australia’s stance on emissions reductions. In an international context, China and the US have progressed a deal on emissions reductions reached last November with discussions earlier this month, as a result of which many cities including Atlanta, Houston, New York, Beijing, Guangzhou and Zhenjiang have pledged new actions. A number of other nations have announced their INDCs in the lead up to Paris.
Last Friday (US time) Chinese President Xi Jinping announced a nationwide cap and trade emissions program as part of efforts to tackle climate change. Cap and trade programs cap the total emissions and sources including power stations and factories purchase and sell credits. In terms of the US, although plans for a nationwide cap and trade program were defeated in 2009, California and other north-eastern states have implemented emissions trading schemes.

See more on President Xi Jinping’s announcement here

Domestically, the Government has changed leadership resulting in the installation of Malcolm Turnbull as Prime Minister. Last week, in response to the announcement of China’s cap and trade program, Environment Minister Greg Hunt announced that the Government will stay the course regarding the ERF which is reported to be “the best, most effective scheme in the world”.

See more on the Australian Government response to China’s announcement here

 According to the Government, further reductions could be considered in 2017/18 as part of discussions on Australia’s 2030 target policy framework.


See more on Australia’s actions here

Given that China and the US (amongst others) have raised concerns with Australia’s commitment for Paris and have signed agreements to peak and reduce emissions respectively, I would be very surprised if they (and other nations attending the Paris Summit) would be prepared to give Australia until 2017/18 to consider further emissions reductions. I think it more likely that the US and China lead the charge in maintaining pressure on Australia to do more in the global challenge that is climate change.
Given the recent announcements by the Australian Government with respect to the state of the domestic economy and the discussions as to the exact nature of the problem, I struggle to fathom why they believe they can maintain one particular strategy and direction with respect to emissions reduction when an increasing number of countries are going in another.
If trade with China and the US continues on their current respective trajectories, by 2017, the combined figure is at approximately $233.7 billion (at a minimum) - $170.84 billion from China and $62.85 billion from the US. I don’t know if many Australians would be prepared to allow their Government to gamble such a figure on any matter - least of all emissions reduction specifically but climate change more generally, especially given the global nature of today’s economy. This is effectively what they are doing by continuing to ignore the rising tide of emissions trading.

China Announces National Emissions Trading Scheme – Experts React

The Conversation

Chinese President Xi Jinping has announced pledged to adopt a national emissions trading scheme from 2017. EPA/MICHAEL REYNOLDS/AAP

China has confirmed that it will launch its national emissions trading scheme.
In a joint US-China climate statement, issued as part of President Xi Jinping’s state visit to the United States, China confirmed that its new trading sytem will cover “key industry sectors such as iron and steel, power generation, chemicals, building materials, paper-making, and nonferrous metals”.
Below, our experts react to the development.

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John Mathews, Professor of Strategic Management, Macquarie Graduate School of Management, Macquarie University
Xi Jinping is scoring a propaganda coup by announcing China’s intention to introduce a national cap-and-trade scheme in 2017, while he is a guest of Obama at the White House. It will not be lost on observers that China will be introducing the very kind of scheme that failed to get through the US Congress, passing the House but being defeated in the Senate.
How interesting that China the communist country is introducing the kind of market-based emissions trading scheme that the United States was unable to launch.
There are two further points to make. The first is that China is introducing its national scheme after trying out various options as local and city-level experimental schemes over the past couple of years. In 2012, pilot programs were initiated in seven provinces, and have been closely monitored since. Here China is teaching the world a lesson in how to introduce reform: first try it out at a small scale in a variety of forms, and then scale up the most successful.
Second, China is not relying on these market-led cap-and-trade initiatives alone. It is also reducing coal consumption in its power sector through direct state intervention, and has been actively promoting solar photovoltaic and wind power through state-guided targeted investment, national planning, and local promotion programs. So the new scheme will take its place as an initiative that helps to solidify China’s trajectory towards greening its energy systems – after direct state action has done the heavy lifting.

Anita Talberg, PhD candidate, Australian-German Climate and Energy College, University of Melbourne
China’s greenhouse gas emissions represent a quarter of the global total. For this reason alone, any tangible progress on Chinese climate action is encouraging. However, what is more promising is what a Chinese emissions trading scheme could mean for the world.
To date we have only seen pockets of emissions trading across the globe; most notably the EU has had a scheme since 2004 and a Californian system has been operating since 2013. Despite concerted efforts, there has been very little headway in linking regional emissions trading schemes. This is because carbon credits would become fungible.
So if one market crashes, so do the connected markets. The entire system is only as strong as the safeguards in the weakest market. The environmental effectiveness of the entire system is only as credible as the monitoring and verification in the least stringent scheme.
The EU and the rest of the world will be looking closely at the integrity and robustness of the Chinese market’s design. If China gets it right, and can elicit enough buy-in, it could represent a turning point for climate change.

Peter Christoff, Associate Professor, School of Geography at University of Melbourne
The announced introduction of China’s national emissions trading scheme in 2017 places irresistible pressure on Malcolm Turnbull to revisit the issue of an Australian ETS.
When China joins the European Union (the world’s third biggest aggregate emitter) and a number of other major emitting countries and states using cap-and-trade schemes to help cut emissions, some 40% of total global emissions will be covered by carbon markets.
Tellingly, Chinese President Xi Jinping made his announcement at a joint White House Press Conference with President Obama. Together they emphasised how the world’s two largest emitters are now collaborating closely to tackle global warming. Pressure is building within the US to create a national integrated scheme on the foundations of its regional efforts, and other major emitters, like Brazil and Russia, are contemplating similar measures.
Australia’s Direct Action Plan cannot easily be linked to this growing global carbon market. Its underfunded “reverse auction” process cannot acquire sufficient emissions to meet even Australia’s 2020 target. Its “safeguard mechanism” is unlikely to require major Australian emitters to reduce their emissions significantly. Australia is now transparently out of step with global trends and, relying only on current measures, incapable of meeting the tougher mitigation targets which will be required of it in the near future.

David Hodgkinson, Associate Professor, Faculty of Law, University of Western Australia
The Chinese government’s announcement of a 2017 national ETS is not surprising. Since 2011 China has been piloting seven trading schemes in cities including Beijing and Shanghai, albeit with varying success, and has been planning for and had foreshadowed a national scheme.
The announcement also builds on last year’s US-China bilateral agreement, which included a pledge from China (for the first time) that its emissions would peak no later than 2030 – although no mention was made of the level at which they would peak.
What is surprising is the speed with which the divide between developed and developing states enshrined in both the UNFCCC and its Kyoto Protocol has now crumbled. Both developed and developing countries in Paris in December will now state their climate pledges, or “intended nationally determined contributions”, including China. These contributions won’t be negotiated by all the parties – that approach has long gone. And the legal character of these contributions is uncertain. But China’s announcement on Friday certainly works in favour of a more robust agreement.
The climate change problem can’t be addressed without China, the world’s largest emitter (or indeed India, the third largest). China now joins the other 75 countries (and the European Union) with frameworks for limiting emissions, and the 47 countries (plus the EU) that have carbon pricing.